Fresh ideas for social housing

The landed and the tenantry

I live in a nice, three-bedroom detached house in Leslieville, home to four adults and three home businesses. Our $152,000 mortgage was paid off years ago. Today, our total housing costs ($400/month in property taxes, plus utilities, insurance, maintenance and major repairs) comes to $863/month.

In other words, I pay less for my three-bedroom house than the $1019 average rent for a bachelor apartment in the City of Toronto.[1]

I am among Toronto’s “landed,” and I am not alone. Forty-three per cent of Toronto’s homeowners have paid off their mortgages.[2]We bought our homes when housing was cheap to buy and cheap to operate. Even with our mortgage payments, our costs were comparable to the few three bedroom rentals on the market.[3] Today, we are in a position to help finance our own children’s homes, or house our adult children who have been shut out by Toronto’s rental market. And when we are ready to move, we could receive upwards of $1 million to invest in a new home, or contribute to a retirement fund, or pay for our long-term care.

Tenants? In Toronto almost half – 47% – are paying more than 30% of their incomes on housing. Their housing costs go up every year by at least the rate of inflation, and sometimes more if their landlord applies for an Above Guideline Increase.

That’s in the regulated rental market. For tenants living in the one-offs – the rooming houses, condos, and basement apartments that comprise almost half of Toronto’s rental housing – it can be the wild west. You don’t have much bargaining power when you’re afraid of losing your home.

That’s because if you do move, you re-enter a rental market that is much more costly than the world you left behind. Check out the excellent survey commissioned by Toronto’s Planning Division.[4]The “asking rent” – the rent of apartments that are actually on the market – is anywhere from 40% higher than CMHC’s average rents for a bachelor apartment to 68% for a two-bedroom. And of course, when you move out you don’t take anything with you except your furniture. No money for retirement. Nothing for long-term care. As for your kids? They are on their own.

When public policy fuels inequality

I think most of us squirm at the thought of a divided society where wealth or poverty is passed from one generation to the next. But what can we do?

My instinct is that wherever there is growing inequality, taxation must be the first line of investigation.

Take property taxes, for example. In Toronto, the property tax rate for multi-unit residential buildings is 2.47 times higher than the rate for houses like mine.[5]That means tenants in these buildings, through their rents, are effectively subsidizing the property taxes of house owners.

This is not news. The City has been gradually shifting the tax burden on what are considered commercial properties, and last April the Ontario Government’s Fair Housing Plan made the welcome announcement that all new rental homes would pay the same tax rate as ownership homes.[6]

My question is, “Why edge in?” Why not rectify this obvious inequity right now, and pass on the savings to tenants? The reason I hear most often is that there are home-owning seniors on fixed incomes who simply can’t afford to pay more taxes. But Toronto already offers tax cancellations or reductions for people who are ill or in extreme poverty. If these provisions are not sufficient to protect the vulnerable, then expand the eligibility requirements. BC, for example, has a Property Tax Deferment Program for people aged 55 and older, people with disabilities and families with children.[7](And let’s not forget that among the beneficiaries of re-balancing tax rates will be low-income seniors living in rental housing who can’t cancel the property tax portion of their rent.)

I think the people more likely to suffer from higher property taxes are millennials who have bought in the past two or three years. A property tax hike would not be as damaging as an interest rate hike, but the combination could upset their precarious balancing act. On the other hand they, unlike seniors, have the potential to increase incomes. In the long run, I would hope a property tax hike would be good news for the next generation, by gently dampening the asking price for houses just as higher interest rates might do.

Can our tax policy do more for us?

I also wonder whether we should be using federal and provincial tax policy to create incentives for the housing we need, and discourage the practices that undermine affordability.

I do know that tax incentives have worked in the past. Many of the rental highrises built in the 70s and early 80s, and now among Toronto’s most affordable rental housing, are the fruit of the Federal MURB program. This national tax shelter program was not cheap, but it did get rental housing built. A better approach was the US Low-Income Housing Tax Credit Program, responsible for creating 2.8 Million new non-profit homes that stay affordable – although I gather this program too is in jeopardy.

And as for discouraging speculation? We have some tools, such as land transfer taxes, a foreign buyers tax and a 50% tax on capital gains when you sell your investment condo. Do we need more tools? If the transfer of wealth among generations is the issue, are we ready to bite the bullet and call for a capital gains tax on principal residences? And as we think of quelling speculation, let’s also think about dedicating those tax revenues to undoing the harms of speculation, like investing in affordable housing.

I have been surprised that there has been so little discussion of tax policy, even among housing advocates. Do you know why that is? And do you have other ideas for redressing the inequity between homeowners and tenants? The comment box awaits.

John Stapleton tried to enter this comment, but ran into technical difficulties. If you are having trouble adding a comment, let me know via twitter @joy1455 . Here is John’s comment:

‘The easiest way to help renters technically would be to make the unearned untaxed gains on principal residences subject to a form of capital gains tax and fund a housing benefit for renters. Easy to say- harder to do. The entitlements of the well to do are sacrosanct but we all pay for extreme home tenure inequality.It’s time for that conversation.

I also believe that it’s time for a tax on the unearned capital gains. You could soften the blow by allowing some “earning” of exemption over time. As long as people think of their house as an investment, let it be taxed as any other investment.

I too think of my condo as an investment – in my retirement. Some of us have come to the market late and through home ownership incentive opportunities, like Options for Homes. We may not have a lot of savings and are counting on profit on sale to fund a major portion of our retirement. Not all homeowners and not all investments are alike.

You’re right Joy. It is an inequity that needs to be addressed now. Would be pleased to write Bill Morneau to appeal for such changes, but would also love to piggyback on other similar appeals being made. Do you know of any? Let me know if you do.